US energy company NRG Energy announced the launch of a proposed offering of a series of debt offerings, including notes being issued under the company’s recently published Sustainability-Linked Bond Framework. Proceeds from the offerings will be used to finance NRG’s $3.6 billion acquisition of Direct Energy, announced in July 2020.
Securities issued under sustainability-linked frameworks have attributes including coupon payments tied to an issuer’s achievement of specific sustainability targets, or Key Performance Indicators (KPIs). NRG’s Sustainability-Linked Bond Framework ties the bonds to one KPI, namely the achievement by the company of a 50% reduction in absolute GHG emissions by 2025 against a 2014 baseline, equivalent to a target of 31.7 MMtCO2e. This goal is in line with the sustainability goals outlined by NRG in 2019, which the company set to align with Intergovernmental Panel on Climate Change (IPCC) guidance, which calls for limiting global warming to a 1.5˚ Celsius increase.
According to NRG’s framework:
“NRG believes the issuance of Sustainability-Linked Bonds (“SLBs”) will support its efforts to achieve its climate transition strategy and reinforce its commitment towards a low emissions future. Such bonds represent the next step in aligning NRG’s business and financing with its commitments and values by creating a direct link between its climate and funding strategies.”
ESG research, data and assessments provider V.E, a Moody’s affiliate provided a second party opinion (SPO) on NRG’s Sustainability-Linked Bond Framework, making NRG the first US-based issuer to receive an SPO on a Sustainability-Linked Financing Framework from the company. In its SPO, V.E stated that it considers the Framework to be aligned with the five core components of the Sustainability-Linked Bond Principles (2020), and in line with best practices.
Benjamin Cliquet, Head of Sustainable Finance Business Development at V.E, said:
“The KPI’s relevance and the ambition of the target are considered ‘advanced’, V.E’s highest level. The KPI is clearly defined, material, measurable and externally verified. The target is in line with the Intergovernmental Panel on Climate Change’s guidance to limit warming to 1.5 degrees.”